172.
In view of the rise in the number of litigations against banks for engaging recovery
agents in the recent past, it is felt that the adverse publicity could result
in serious reputational risk for the banking sector as a whole. An urgent need
has, therefore, arisen to review the policy, practice, procedure involved in the
engagement of recovery agents by banks in India. Accordingly, banks are urged
to follow prescribed specific considerations while engaging recovery agents.
173. Complaints received by the Reserve Bank regarding abusive practices followed
by a bank’s recovery agents would invite serious supervisory disapproval. The
Reserve Bank would consider imposing a temporary ban (or even a permanent ban
in case of persistent abusive practices) for engaging recovery agents on those
banks where strictures have been passed/ penalties have been imposed by a High
Court/Supreme Court or against its Directors/Officers with regard to the abusive
practices followed by their recovery agents. An operational circular in this regard
would be issued by November 15, 2007.
Annex
2
Mid-Term
Review of the Annual Policy for the year 2007- 08:
Recovery
Agents engaged by banks – Draft guidelines
There
has been a rise in the number of litigations against banks and adverse publicity
in the recent past for engaging recovery agents. The consequent likely implications
for reputation risk not only for the bank concerned but also for the banking sector
as a whole has necessitated a review of the policy, practice and procedure involved
in engagement of recovery agents by banks in India. In this backdrop, the Reserve
Bank proposes to issue the following operational guidelines for adoption by all
commercial banks. A reference to 'agent' in these guidelines would include agencies
engaged by the bank and their agents / employees, as well as the bank's own employees.
Engagement
of Recovery Agents
2.
Banks are advised to take into account the following specific aspects while engaging
recovery agents:
(i)
Banks should have a due diligence process in place for engagement of recovery
agents, which should be so structured to cover, among others, individuals involved
in the recovery process.
(ii)
To ensure due notice and appropriate authorization by the banks, they should inform
the borrower the details of recovery agents engaged for the purpose, while forwarding
default cases to the recovery agents. The details should include their telephone
numbers etc. The recovery agents should call the borrowers only from telephone
numbers notified to the borrower.
(iii)
Each bank should have a mechanism whereby the borrowers' grievances with regard
to the recovery process can be addressed. The details of the mechanism should
also be furnished to the borrower while advising the details of the recovery agent
as at item (ii) above.
Methods
followed by Recovery Agents
(iv)
It is understood that some banks set very stiff recovery targets or offer high
incentives to recovery agents. These have, in turn, induced the recovery agents
to use intimidatory and questionable methods for recovery of dues. Banks are,
therefore, advised to ensure that the contracts with the recovery agents do not
induce adoption of uncivilized, unlawful and questionable behaviour or recovery
process.
(v)
A reference is invited to para 2 (v) (c) of Circular DBOD.Leg.No.BC.104/
09.07.007 /2002-03 dated May 5, 2003 regarding Guidelines on Fair Practices
Code for Lenders and para 6.3 of the Master Circular DBOD.FSD.BC.17/ 24.01.11/2007-08
dated July 2, 2007 on Credit Card Operations. In terms of these guidelines, banks
were advised that in the matter of recovery of loans, (a) the lenders should not
resort to undue harassment viz. persistently bothering the borrowers at odd hours,
use of muscle power for recovery of loans, etc. (b) the banks should ensure that
agents engaged by them for debt collection refrain from action/s that could damage
the integrity and reputation of the bank (c) their agents should not resort to
intimidation or harassment of any kind, either verbal or physical, against any
person in their debt collection efforts, including acts intended to humiliate
publicly or intrude into the privacy of the borrowers'/ credit card holders' family
members, referees and friends, making threatening and anonymous calls or making
false and misleading representations.
(vi)
A reference is also invited to paragraph 6 of the 'Code of Bank's Commitment to
Customers' (BCSBI Code) whereby banks are required to strictly abide by the codes
pertaining to collection of dues.
Training
for Recovery Agents
(vii)
In terms of Para 5.7.1 of our Circular DBOD.NO.BP.
40/ 21.04.158/ 2006-07 dated November 3, 2006, on guidelines on managing risks
and code of conduct in outsourcing of financial services by banks, banks were
advised that they should ensure that, among others, the recovery agents are properly
trained to handle with care and sensitivity, their responsibilities, in particular
aspects like hours of calling, privacy of customer information etc.
(viii)
Reserve Bank has requested the Indian Banks’ Association to formulate, in consultation
with Indian Institute of Banking and Finance (IIBF), a certificate course for
Direct Sales Agents / Direct Marketing Agents / Recovery Agents with minimum 100
hours of training. Once the above course is introduced by IIBF, banks should ensure
that over a period of one year all their Recovery Agents undergo the above training
and obtain the certificate from the above institute. Further, the service providers
engaged by banks should also employ only such personnel who have undergone the
above training and obtained the certificate from the IIBF.
Taking
possession of property mortgaged / hypothecated to banks
(ix)
In a recent case which came up before the Honourable Supreme Court, the Honourable
Court observed that we are governed by rule of law in the country and the recovery
of loans or seizure of vehicles could be done only through legal means. In this
connection it may be mentioned that the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and the Security
Interest (Enforcement) Rules, 2002 framed thereunder have laid down well defined
procedures not only for enforcing security interest but also for auctioning the
movable and immovable property after enforcing the security interest. It is, therefore,
desirable that banks rely only on legal remedies available under the relevant
statutes which allow the banks to enforce the security interest without intervention
of the Courts.
(x)
Where banks have incorporated a re-possession clause in the contract with the
borrower and rely on such re-possession clause for enforcing their rights, they
should ensure that such repossession clause is legally valid, is clearly brought
to the notice of the borrower at the time of execution of the contract, and the
contract contains terms and conditions regarding (a) notice period to be given
to the customers before taking possession (b) the procedure which the bank would
follow for taking possession of the property and (c) the procedure which the bank
would follow for sale / auction of property. This is expected to ensure that there
is adequate upfront transparency and the bank is effectively addressing its legal
and reputation risks.
Use
of forum of Lok Adalats
(xi)
The Honourable Supreme Court also observed that loans, personal loans, credit
card loans and housing loans with less than Rs.10 lakh can be referred to Lok
Adalats. In this connection, banks' attention is invited to Circular DBOD.No.Leg.BC.21/09.06.002/2004-05
dated August 3, 2004 wherein they were advised to use the forum of Lok Adalats
organized by Civil Courts for recovery of loans. Banks are advised that they should
preferably use the forum of Lok Adalats for recovery of personal loans, credit
card loans or housing loans with less than Rs.10 lakh as suggested by the Honourable
Supreme Court.
3.
Banks, as principals, are responsible for the actions of their agents. Hence,
they should ensure that their agents engaged for recovery of their dues should
strictly adhere to the above guidelines and instructions, including the BCSBI
Code, while engaged in the process of recovery of dues.
4.
Complaints received by Reserve Bank regarding violation of the above guidelines
and adoption of abusive practices followed by banks’ recovery agents would be
viewed seriously. Reserve Bank may consider imposing a ban on a bank from engaging
recovery agents in a particular area, either jurisdictional or functional, for
a limited period. In case of persistent breach of above guidelines, Reserve Bank
may consider extending the period of ban or the area of ban. Similar supervisory
action could be attracted when the High Courts or the Supreme Court pass strictures
or impose penalties against any bank or its Directors/ Officers/ agents with regard
to policy, practice and procedure related to the recovery process.